Navigating economic downturns is personal. The economic stress caused by the pandemic has been unique and varying. To put it simply, this pandemic has been polarizing. No matter what your situation, here is a list of seven items to keep in mind during rough economic times.
Tap It or Top It
Your emergency funds should not go unconsidered. It’s hard shifting from saving into an emergency fund to actually using the funds. But if you’re struggling, remember that those emergency funds are for use. And for those not hit so hard, good times are the points to bolster your emergency fund – and not to overspend.
In tough economic times, some will reduce risk in their investment portfolios by selling. Before you do (or if you already did), be sure to have a plan for re-entry. There’s nothing wrong with looking to protect your portfolio. But selling out suggests that a second decision must happen – when to buy. Re-entry could be data points-linked or phased purchases. Keep in mind that re-entry is always the harder decision, and sustained recovery points are hard to identify and easy to miss.
Yes, pausing retirement plan contributions can be a source of additional cash flow. Retirement plans are typically the last place to make adjustments in tough times. The beauty of regular contributions to plans is that you buy more shares when prices are low and buy less shares when prices are high (AKA dollar-cost averaging). Also, if you turn off contributions to your retirement accounts, you have to remember to turn them back on.
Don’t Ignore It
No one will fault you for not opening statements or logging into accounts in rough times. Who wants to see those losses? But checking in on your accounts, although painful at times, is necessary. By checking, you won’t miss important account notifications or possibly suspicious activity. And in some cases, rough times may force you to reconsider holdings – and might allow for some tax-loss harvesting to offset previous or future gains.
Your most precious resource is time. In rough economic patches, it’s easy to spend what once was free time trying to make more money. While it’s a responsible effort, don’t take it too far. We all need time for social engagement, physical activity or good old sleep. Taking care of yourself allows for taking care of other things.
One Step at a Time
If you need to make adjustments to your finances, take it one step at a time. It’s easy to over react and cut budgets to the bone. It’s best to approach increasing cash flow by prioritizing all options first. Then you can plan for the order of changes. Don’t forget to plan for a return to normal too.
No matter your situation, always look for ways to prosper. Rough patches may present opportunities that were not present or were more expensive before.